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Faced with uncertainty over Japan Inc.’s future earnings, hedge funds and asset managers are trying on something a little different from their bread and butter. According to the Nikkei Asian Review, a slew of profit downgrades coupled with a shaky global economy have led investors to flee from Japanese large-caps in favor of the more domestically-oriented small-caps: “Institutional investors are

Vietnam’s young demographics and increasingly tech-savvy population are making the country a draw for tech investors but the market is still largely underserved, say local venture capitalists (VCs). 500 Startups’ recent decision to add two new venture partners - Binh Tran and Eddie Thai - in Vietnam is the latest indication that more VCs are interested in the country, The

<p>Just as the Nikkei was shrinking 8%, apparently, Japanese mutual fund assets did some shrinking of their own.</p>
<p>Citing data from the Investment Trusts Association, the Nikkei Asian Review reports that mutual funds in the land of the rising sun saw their assets under management shrink by a whopping ¥3.57 trillion ($30 billion) in September. That’s the same amount needed to rebuild Fukushima.</p>
<p>The drop left the industry with just ¥93 trillion ($782 billion) in assets last month – its lowest level for the year – though still above last November’s ¥92.6 trillion ($779 billion) reading, not to mention the dramatic, post-Lehman decline.</p>
<p>A lot of variables contributed to this, the surging yen for example ate away at foreign currency-denominated investments, while operating losses – now on its fourth consecutive month – continued to erode value.</p>
<p>Still, inflows continue to be positive, and if investor commentary is anything to go on, investors are still in love the region, deteriorating fundamentals or not.<br />
Photo: Moyan Brenn</p>

<p>A phenomenon that has caught plenty of market observers by surprise this year is the outperformance of the momentum factor over its value counterpart. Momentum can take on multiple forms and it is not limited to glitzy biotechnology and Internet stocks.</p>
<p>However, it is some of those glitzy Internet stocks that have driven the impressive returns accrued by the consumer discretionary group, this year's top-performing S&amp;P 500 sector.<br />
Don't Be Surprised<br />
"The strength of consumer discretionary stocks is not altogether surprising, given the strength of the labor market. Wage and salary growth is up 4.0% since last August, and consumers’ assessment of the job market is also favorable. According to The Conference Board, the spread between those stating that jobs are "plentiful" and those claiming that jobs are "hard to get" was 0.8 in September – the widest chasm in sentiment since the spring of 2008," said PowerShares, the fourth-largest U.S. ETF issuer, in a recent note.</p>
<p>Read more at Benzinga. <br />
Photo: B4bees</p>

<p>Speaking at Fortune's Most Powerful Women Summit, former activist investor Warren Buffett had some pretty nice things to say about activism. Activist funds however seem to continue drawing his ire, especially when it comes to the fees they garner. “They’re like sharks, they got to keep swimming.”</p>
<p>Photo: Fortune Live Media</p>

<p>With the closure of Michael Novogratz’s Fortress Macro Fund splattered all over the news, Bill Gross, the former bond king and renowned ruminator of all things doo-dooey, had some pretty interesting things to say on his twitter feed:</p>
<p>Gross: Story of The Day - Deep out of the money hedge funds shut down if 20% of profits out of reach. Start over later with clean slate!<br />
— Janus Capital (@JanusCapital) October 13, 2015</p>
<p>Interestingly, here’s how PIMCO’s Total Return Bond Fund did prior to his jump to Janus.</p>
<p>Pot, meet kettle.</p>
<p>To be completely fair though Total Return’s performance really wasn’t the disaster people were making it out be, although it definitely was a far, far cry from its former glory.</p>
<p>Still, with all the Mills and Boonery following his departure from PIMCO, his new fund's constant outflows, and the lack of uncomfortable, personal musings in his monthly outlook, somebody should really go check on him. These antics of his are starting to get a little out of hand.<br />
Photo: Janus</p>

<p>Ten-year Treasury yields have declined 4.1 percent over the past month as market participants have continued adjusting to the Federal Reserve not raising interest rates following its September meeting.</p>
<p>Perhaps that explains why inflows to fixed income exchange traded funds have been so strong this month. Heading into Monday, three of October's top four asset-gathering ETFswere bond funds while just one bond fund was found among the month's 10 worst ETFs for outflows.</p>
<p>When it comes to how traders are viewing what that decision will be, Fed funds futures recently indicated that fewer than a third of fixed income traders are wagering the Fed will boost borrowing costs. However, there also is not a dearth of market observers that believe it is foregone conclusion the U.S. central bank will pass on raising rates.</p>
<p>Read more at Benzinga. <br />
Photo: Brookings Institute </p>

<p>October 12, 2015<br />
London, England</p>
<p>[Editor’s note: This letter was written by Tim Price, London-based wealth manager and editor of Price Value International.]</p>
<p>Those whom the gods wish to destroy they first pay too much.</p>
<p>How else to account for the astonishing $200 million lawsuit filed last week by billionaire bond investor Bill Gross against his former employers, Pimco?</p>
<p>Like so many legal actions, this is one case where you wish both sides could lose.</p>
<p>Then we had the comparably remarkable public defenestration of Daniel Godfrey, head of the UK fund management trade body the Investment Association, apparently for campaigning for greater transparency on fund fees and charges.</p>
<p>It’s as if the Investment Association were an offshoot of the Volkswagen management board. (Please don’t tell my mother I work in fund management– she thinks I’m a piano player in a brothel.)</p>
<p>In medicine, they have something called the Hippocratic Oath. It requires physicians to swear to uphold certain ethical standards.</p>
<p>In modern fund management, there is no Hippocratic Oath. Whereas doctors are expected to “First, do no harm”, in modern fund management, iatrogenic illnesses hold sway.</p>
<p>An iatrogenic illness is one that is caused by the physician himself. Fund management doctors seem to be doing the best they can to kill their own patients. Science has a word for this, too. It’s called parasite.</p>
<p>There is a solution to all this insanity.</p>
<p>The chief investment officer of the Yale Endowment, David Swensen, has written an excellent book entitled ‘Unconventional Success’.</p>
<p>The title is an allusion to Keynes’ famous observation that fund managers, courtesy of endemic groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional success. Swensen himself has steered the Yale Endowment through many years of impressive investment returns.</p>
<p>Swensen pulls few punches.</p>
<p>The fund management industry involves the “interaction between sophisticated, profit-seeking providers of financial services [Keynes would have called them rentiers] and naïve, return-seeking consumers of investment products.</p>
<p>“The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential number of cases where individuals succeed through unusual skill or unreliable luck, the powerful financial services industry exploits vulnerable individual investors.”</p>
<p>The nature of ownership is crucial. To Swensen, the more mouths standing between you and your money that need to be fed, the poorer the ultimate investment return outcome is likely to be.</p>
<p>In a rational world, investors would be well advised to favour smaller, entrepreneurial boutiques, or private partnerships, over larger, publicly listed full service investment operations – especially subsidiaries of banks or insurance companies – with all kinds of intermediary layers craving their share of your pie.</p>
<p>The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the financial media is just one example of a large fund management organisation that appears to have entirely forgotten what its core purpose is, or should be.</p>
<p>This past week, and the conjunction of the Bill Gross lawsuit and the Investment Association’s Daniel Godfrey debacle, is likely to go down as one of the biggest fund management public relations disasters in history.</p>
<p>Before buying any fund, a</p>

<p>Regulations are killing Chinese quant funds</p>
<p>Hoping to shine post-Black Monday, mainland quant funds find out that they have nothing have dark days ahead of them.</p>
<p>In an effort to curb “excessive speculation” post market rout, the China Financial Futures Exchange clamped on a series of regulations back in August, including raising margin requirements on stock index futures from 30% to 40%, and restricting the opening of positions from 600 contracts to just 10 per product a day, defining anything over that as “irregular.”</p>
<p>Well, according to the SCMP, that didn’t work so well for the nation’s burgeoning hedge fund industry – especially for its futures-oriented quants.<br />
“We thought a bear market would help us stand out, and actually we did, but things were turned upside down by the new regulations on stock index futures trading.”<br />
Faced with higher expenses and limited ways in which to seek alpha – or even hedge, for that matter – hundreds of mainland quant funds have been forced to close up shop this year, while some of those still in operation have simply shifted to survival mode.</p>
<p>Further complicating matters is the fact that these guys are typically smaller operations, making it difficult for them to branch into different asset classes as their bread and butter dries up, as Reorient chief Brett McGonegal related to the SCMP:<br />
“If you have only three employees in your firm, how can you manage to achieve a well-rounded asset class allocation and develop effective risk management platforms?”<br />
With regulators desperately clinging to whatever shred of credibility they have left, there just seems to be no way for the industry to get back to its feet.</p>
<p>After every hardship comes ease though, so whoever’s cutting his teeth in this twilight of the quants is sure to be a monster. Let’s see who does.<br />
Photo credit: JERRYANG</p>

<p>China’s biggest player in the distressed-asset space might need some de-stressing on the road to its long-awaited Hong Kong IPO.</p>
<p>The Nikkei Asian Review reports that China Huarong’s upcoming $2.5 billion offering might not be the blockbuster it was cracked up to be, largely thanks to a slew of behemoths IPOs scheduled around the same time:<br />
“Alvin Cheung Chi-wan, associate director at Prudential Brokerage, expressed doubt that investors can digest a multibillion Huarong IPO. He said that there would be competition for investors' money as there is a swollen pipeline of big IPOs due to come in October, including that of Chinese International Capital Corp, an investment bank looking to raise about $1 billion.”<br />
Aside from the CICC, China Re – the region’s largest reinsurer – is also set to sell 5.77 billion of its shares this month.</p>
<p>Further complicating matters for Huarong is its valuation. Analysts currently peg the asset manager’s shares at around 1.2 times book value, a decent estimate whichever way you look at it, save for the fact that Cinda – its closest rival – currently trades below book value.</p>
<p>And that’s not all, state-owned enterprises apparently aren’t allowed to sell below book, giving its advisers – Goldman, CICC, HSBC, just to name a few – with very few options left to fulfill their duties.</p>
<p>Still, it isn’t all bad news. Being a state-owned enterprise still brings the cache of being backed by Beijing, not to mention a rep that these shares are off-limits to short-term speculation. And that alone should help it attract more than a few investors.<br />
Photo: See-ming Lee</p>